Invigorate Finance’s Jennifer McGuinness on this year’s purchase market

Sarah Wheeler: Welcome, everyone. This is Sarah Wheeler, editor in chief at HousingWire with the latest episode of our Housing News podcast. I’m excited to introduce our guest today, Jennifer McGuinness who is the president of Invigorate Finance. Jennifer has more than 25 years’ experience in lending and aggregation, banking, asset management, servicing, securitization, and structured finance. Most recently she was founder and head of aggregation and structured finance for Mortgage Venture Partners and has now partnered with Fay Financial on Invigorate. She is also the founder of Strategic Venture Partners.

Prior to Invigorate, Jennifer was senior vice president of single-asset lending for Colony American Finance where she created inaugural products and built and oversaw retail and correspondent lending. Previously, she was director and head of asset management and transaction banking for both Premium Point Investments and WinWater Home Mortgage where she was principally responsible for the creation and management of that program, and they were the first hedge fund issuer of RMBS securities backed by newly originated mortgage loans. She has also been vice president of asset management and breach administration manager for Deutsche Bank’s RMBS business and run various groups for GRP Financial Services Corporation.

As you can tell, she is an incredible expert to have on. We’re really excited to have her. Jennifer, welcome to Housing News.

Jennifer McGuinness: Thanks, Sarah. Thanks, guys, for having me. You know, I’m excited to chat with you.

Sarah Wheeler: Yeah. The first question we like to ask our guests is how they got into this industry. And, you know, we end up learning a lot about our guests this way, so we’d love to know how… You’ve had a very storied career. So how did it all start?

Jennifer McGuinness: It was an accident if I’m being honest. I actually was going to school because I decided I wanted to be a mergers and acquisitions lawyer. And honestly, I graduated six months early so I couldn’t take the LSAT. So the first thing I did was get a paralegal certificate, figuring it would help me in law school. And when I was in college, I was actually a mortgage lawn processor and underwriter. And then with that paralegal certificate, I decided to then go work in legal to get my teeth cut to become a lawyer.

Well, that led to a lot of happy accidents thereafter which I worked on the happy side of origination, the not-so-happy side, and ended up doing national footprint, real estate-based litigation, foreclosure, bankruptcy, REO, etc. And honestly I was poached by one of our clients and the rest is history. You know, my background has been an interesting story because it’s literally gone from everything front office origination, new issue underwriting all the way through special servicing, structured finance, outset management, etc. So it’s been a very cool ride but it was absolutely initially an accident.

Sarah Wheeler: What I also think with that kind of breadth of experience, I mean, you couldn’t have planned it. You couldn’t have been like, “Oh, yes, I’m going to get picked up by our client,” “Oh, yes, I’m going to do this.” So I think those happy accidents are the best.

Jennifer McGuinness: I tend to agree. Yeah, no. I think it was a cool thing. You know, over the years, I’ve said to myself… And I got into law school a couple times and I honestly never went. You know, did I do the right thing? And I think I did in the long run. I think I ended up with the role I wanted. Being more on the business side of things, I’ve worked with a lot of lawyers, fantastic firms, and things. I definitely have used those legal skills. Just never became a lawyer.

Sarah Wheeler: You know, I’m sure that comes in very handy with all the different things you’ve done. Well, let’s talk about your most recent endeavor here. You recently launched Invigorate Finance which combines what you built at Mortgage Venture Partners and it partners you with another industry veteran Ed Fay who I know our audience is very familiar with. So, you know, what is your vision with this new company and what do you hope to accomplish by combining your considerable expertise?

Jennifer McGuinness: So we’re definitely continuing the growth of the Mortgage Venture Partners platform and the aggregator. But, you know, I think Ed and I both saw a real opportunity to collaborate with awesome complementary skills. You know, some of the big challenges for lenders is the cost to originate. Another big challenge is servicing. The other is having lending programs available to service their entire customer base. You know, clearly, at Mortgage Venture Partners, we were already focused on helping lenders service their customer base but now with being able to also at times offer, you know, products that can cut the cost to originate and also a fantastic servicing avenue, I think, you know, it’s a big value-add for the overall platform. Invigorate is really focused on bringing the market forward.

Sarah Wheeler: Well, let’s talk about some of that, you know, the way that you guys complement each other. You know, what is the combination of you and Ed? What was that bring to the market?

Jennifer McGuinness: I mean, a lot of guys know both Ed and I, and I would say, that we have complementary skill sets to each other but not the same skill sets. You know, a lot of people don’t know that Ed originally started on the origination side of things and then has become one of the top five servicers in the U.S. You know, on my side, you know, I always worked in servicing and threshold servicing, so I can understand the things that he’s been working on and doing from an asset management perspective over the course of 12 years with Fay Servicing. And he can generally understand what we’re attempting to do on the origination side. I think by marrying those skill sets and, you know, bringing those things, I think it’s a game-changer. I think you’re going to see products, processes, tools, and the level of customer service and aggregation that other people cannot offer. And I think we also have the other business channels to complement that when people need end-to-end solutions.

Sarah Wheeler: That’s interesting, especially where we are in the market right now with, you know, servicing playing a maybe increasingly important role. I mean, I think it’s always been important to the people who are having their loan serviced, of course, but I just feel like there’s a real national spotlight on servicing right now.

Jennifer McGuinness: No, and I agree with that. And, you know, in many of the roles that I’ve sat in, including the current one, I’ve been the asset manager over very large portfolios of loans. And not all services are created equal, and I think that’s an important thing to consider. You know, what servicer is the best servicer to partner with for the product, the process, and execution that you’re looking to achieve? So I think you’re right. I think your servicer is increasingly important, and I think that your partners in general, especially in a almost post-pandemic world, are that much more important. You need partners that are willing to stand by you during the hard times and also grow with you during the good times.

Sarah Wheeler: Well, let’s talk about where we are in the market because, after a blockbuster season with refis, I mean, just, you know, settle the records, we see the purchase part of the origination market, you know, ramping up for the rest of this year, which means lenders need a lot of loan options to find the right fit for borrowers. But, you know, tell us what you see in the purchase market right now.

Jennifer McGuinness: So I do agree that shortly this refi boom from COVID is going to come to an end, right? There’ll always be refinancing, cash-out refinance, but I think if lenders are not positioned with purchase money products and really training up their teams right now to deal with how to sell those to the customer base, I think they’re going to be at a big disadvantage. You know, even in the last couple of months, you know, I will tell you two, three months ago, there was hardly any supply on the market. I’d say it’s probably 3x of that supply are ready and growing. So I think that that’s very important. I think there’s also been a big uptick in investor purchase with the amount of money that have been put to work on the single-family rental side of things and investor acquisition, fix and flip, and such. And I think that the proper products have to be structured out there. So, for us, we have four different lending products on the investor business purpose side, and we have another four residential mortgage products. So we’re really looking to diversify with our lender counterparties in order to give them a suite of products to service all of those counterparties.

Sarah Wheeler: The timing of that, right? I mean, perfect timing for that.

Jennifer McGuinness: Thank you.

Sarah Wheeler: You mentioned inventory. You know, the lack of housing inventory is a huge pain point right now, and we’re hearing a lot of talk about the share of homes that are being bought by large investors to rent out or even the whole build to rent concept, which takes some portion of homes off the market, right, for, you know, owner-occupiers. You were a pioneer of the single-family rental model and making that work from the investor side. What is your take on the investor versus owner mix when it comes to housing right now?

Jennifer McGuinness: Well, I think it depends on how you cut the segments up. I think there’s a lot of different opinions. You know, right now, if you really look at what’s been happening, you know, higher buyer demand has obviously driven property prices up significantly and there are fewer sellers in the market because there weren’t as many properties listed. Some of the reason for that is, you know, some of the foreclosure moratorium, for the venture moratorium, some of the reason for that is candidly that people are staying in their homes and they’ve turned not only into their homes but also their office and whatnot.

You know, I think that what you are seeing is that median home prices have increased almost 20%. So if you would have looked a year ago from this past April, you know, the current median price of an existing home sold in April for $341,600. That is really a 19% plus increase from the year prior. So I think that’s an interesting question. I think that the mortgage market being, in a lot of ways, agency-driven at the moment, also, kind of, gives investors an upside in some ways of being able to take some of these properties out because they’re cash buyers. So expediency has been a big deal on the market as well.

From a build for rent or just a ground-up construction component in general, I think [inaudible 00:11:41] forward, you know, the housing hasn’t been as significant as they were pre-crisis, and I think that you are seeing a shift now for, you know, more build, be it for rentals, you know, primary residence collateral, etc. So I think it’s a good shift. I think we need to be a little careful if home prices are getting too high overall.

Sarah Wheeler: Well, what is your take on that? Are home prices getting too high?

Jennifer McGuinness: There are absolutely certain markets where the values in which assets are trading are not correct, and there have been trends in certain areas where buyers are literally ensuring the gap above the appraised value to buy properties. My concern being somebody that understands what happens in downturns and not only being on the origination side is, when a borrower does something like that and they decide to spend 20% cash over an appraised value, that’s where a borrower can really get stuck in a home, right? That’s why, in a down scenario, they really don’t have the flexibility to get out. And that’s not a product that we would like to be a part of.

Sarah Wheeler: Yeah, that’s an interesting point. And we are seeing that absolutely all over. I mean, even in very unusual markets that you would not think were hot. You know, we’ve been seeing it. Everyone’s been seeing it over the last year, especially since, say, September and then just really heating up since January of this year. So, you know, the oddest place is where you’re like, “Really”?

Jennifer McGuinness: No, agreed. I think the one thing that I am happy to see mostly is that lenders have now decided to start offering $100 to $100 plus LTV loan. You know, the gap on the LTV from a financing perspective is being offset by cash from a buyer. So I think that’s good versus seeing lenders starting to offer overleveraged financing.

Sarah Wheeler: Yeah, that’s a great point that I haven’t heard anyone else bring up is that you really aren’t seeing that. I mean, it hasn’t changed the bar. Really the lenders are like, “Okay, well…” You know, because if that person can’t make it up, there’s 25 other people in line, right, who are going to make it up. I’m not saying that’s why the lender is doing that, but the lender can do that because, you know, that person beat out a lot of other people to get there.

Jennifer McGuinness: Yeah, and I think that that’s a good fundamental, the fact that we haven’t seen some of what we saw pre-crisis which was 100, 105 LTV financing, right? I think we’ve seen financing up to, let’s call it, 90/95, which everybody has their own risk appetite so more power to the 95 plus LTV people. But with that said, I think it’s a good thing that we haven’t seen the rise of 100 plus LTV product.

Sarah Wheeler: Yeah, interesting. Well, that segues right into my next question which was about non-QM offerings. So, you know, we saw they took a big hit during really just the two to three months of COVID during the worst part of that. Where do you think we are as far as the recovery of that part of offerings?

Jennifer McGuinness: I think we’re getting there, but I do think that the devaluing of taking, you know, $104, $105 price collateral and all of a sudden overnight the market alluding that it was worth between, you know, 70 and 88 cents was a little bit much. But, you know, look, I think the shift righted in a reasonable amount of time to allow the asset class to continue. I think that, you know, people’s engines and investment appetites have started to grow again more so in that product class. We will relaunch our first-lien non-QM shortly. So we will put that product back on the market. But I do think that, you know, the securitization market for that will start to come back.

Sarah Wheeler: Yeah, I’d love to pick your brain a little bit more on the build to rent part which we talked about just a minute ago because I just really feel like… You know, when we’re talking about inventory, there are definitely… The build to rent model, those houses wouldn’t be built…. It’s not like those houses would have been built and, you know, bought by people who were going to own them if they weren’t built by the companies who were doing build to rent. So, you know, tell us what you think about build to rent and where do see the opportunity there.

Jennifer McGuinness: I think that it is a question of, is it that there’s been a lot of money raised in that sector and there isn’t enough supply to service the amount of capital that’s been raised or is it that these houses would not have been built for a primary residence occupant? And I think it’s a hybrid. I think a ton of money has been raised in, you know, rental asset financing. I think that the supply is low even on primary residents’ trading of properties. And I think that the investors with the mandates that they have from the capital that’s been raised need to figure out a solution.

So I think the rise of, you know, ground-up construction or build for rent has really been, you know, built off of that, the fact that there has been a ton of capital raised in that sector. And I think it’s a differentiated execution versus for some of the guys that are very large in that space, what they would have done if not for, you know, COVID and certain other things. So, you know, I do think it’s a good product. We offer a ground-up construction product on a business purpose loan. And, you know, we’re very excited about our product. We’ve gotten great interest in it. And, you know, so I do think it’s a great product. I think it’s a good execution. But the question I think if you think about market, in general, is just, you know, would this have initially been the execution or would it have been slightly different. My humble opinion is I think it would have been a little bit more of a mix than what you’re seeing on a more super aggressive build for rent front but I don’t think it’s bad for the market.

Sarah Wheeler: Interesting. Interesting on that. You know, I had a guest about a month ago Ed Pinto, right, at the American Enterprise Institute. Really smart guy. He was talking about the fact that the whole build-to-rent market was really, in some ways, a reaction to really try to make the most of all those [inaudible 00:18:58] houses, right? After the financial crisis, it’s like, “Okay, well, people need homes. We need people in these homes.”

And I would love to know, you know, what do you think when you look at that and go… He said, you know, at the time, people thought that those investors would sell into the market as it went up. They didn’t expect them to hold those assets for so long. But, you know, because things have done so well, like, why wouldn’t they, right? So I would love to get your thought about that.

Jennifer McGuinness: Well, I think that, you know, one of the things that you’re seeing especially in the REITs that hold a lot of that collateral is that there’s been… I realized when there’s a steady increase in home prices, there’s generally a steady increase in rental, right, as well. So if you’re getting increases in rent, let’s say, 5% per year, you really don’t put yourself in a place where you want to exit the real estate [inaudible 00:19:53] hasn’t hit his top, right?

So I think that I’m not usually surprised that the larger investors in rental properties have not sold the assets. I actually expected them to keep them with the fundamentals of what you’re seeing report in those sectors from a return profile perspective because they’ve also had significant and healthy growth in rent. And quite frankly COVID in a lot of ways, you know, drove down their vacancy percentages and the majority of their tenants have paid. So, you know, by virtue of that, I actually think it’s been a win in that sector for those investors.

Sarah Wheeler: Yeah, great point on that. You know, philosophically let’s just switch here for a minute because part of the whole discussion around build to rent or SFR is like the good of homeownership versus, you know, the less good in some ways of rental. But is that your perspective?

Jennifer McGuinness: You know, I don’t judge people by if they own a home or they rent a home, okay? And I’ll explain why. You know, a lot of people in my humble opinion look at home ownership as, you know, a right of passage. They own a home, they’ve achieved the American dream per se. But if you’re not necessarily capable of maintaining that home efficiently yourself, right, why would you want to put yourself in that position? Whereas with a consistent rental payment, if a doomsday scenario happened in a home, it would be taken care of by a landlord.

So I think that people that get, you know, “Oh, everybody should be a primary residence purchase-money buyer versus rental. It means you haven’t achieved,” something is wrong, okay? I can unequivocally tell you 25 plus years deep into this business there are significant wage earners out there that absolutely should never own homes. And there are guys that are making hourly minimum wage that should. It’s a mindset and it’s the manner in which you decide how… Your primary residence, be it a rental or a purchase-owned residence, is going to work for you.

Sarah Wheeler: Interesting. I like that perspective, and I’d like to get a different perspective because of course, we’re HousingWire. We support homeownership as a general good but only if people can afford it, right? We’ve all seen that. If we just try to get too many people into products that aren’t going to work for them, that’s not good for anyone. To your point, that could end up being very bad. But I do think it’s interesting that I feel like a lot of the… What we’re hearing right now against investors buying, you know, houses to rent is you see, sort of, some underlying themes there, I think, that are interesting.

Jennifer, one of the things that we’ve seen with people making up the appraisal gap is… So, you know, they were approved for the loan amount and then they’ve been able to make up that appraisal gap if they win the home and they can do that. But then what does that mean for sustainable homeownership going forward? And, you know, people have said, you know, if you get over your skis on that, maybe you can get in. But what happens if something happens maintenance-wise which we all know happens with homeownership? And I didn’t know, if that’s from an investor standpoint, something that you guys look at.

Jennifer McGuinness: Well, I think that investors, you know, can look at it if they can see enough of it, right? So we know that the trend exists. We know that certain areas that’s definitely happening, but you have to realize that you really can’t make an investment decision off of an encapsulated theme. You have to actually see longer duration trends on, you know, the repetitiveness of that, right? So everybody knows it’s happening, but I would say that it’s not necessarily a data point with significant enough data to really base an investment thesis on today.

Sarah Wheeler: Do you see any of the things the trends that we would see that happened over the last year with COVID that you can say, like, “I can see how from an investment standpoint, we’re going to be looking at x 5 years from now or 10 years from now,” whatever. Like, do you already see some things that you could say are going to be long-lasting?

Jennifer McGuinness: Well, I don’t necessarily think on the overpayment of the cash component of buying homes, but I think we’ve seen huge shifts during COVID. I don’t know about you but in the majority of the world that I grew up in, businesses being run out of people’s homes were never really seen as real businesses except if they were smaller sold practitioners. It was like, if you didn’t have brick and mortar office space that people could walk into and touch and feel, people really saw you as being not really in business.

But now that you’ve taken large investment banks, Google, Facebook, various huge corporations and proven that those businesses can work in many ways remotely, I think that that particular facet has changed significantly. I also think the use of properties that are your primary residence, be it rental or for acquisition has also changed, right? You know, not many people were looking when they were going to buy homes. I mean, some of us were. Like, for me, whenever I bought a home or candidly rented a home, it was very important that I’d have a home office. But that’s more driven by the fact that I’ve been on Wall Street for as long as I have.

So we work at night, right? But with that said, now you have all different sectors of industry job roles, job types, etc. also meeting to be able to have space to work from their home. So I’m interested to see what that shift may do to… The trends and the things that are modeled as it pertains to minimum number of bedrooms, bathrooms, minimum number of square footage, and watch those types of metrics over the course of the next few years. And I think, you know, the question will be, will COVID lead to more homeownership because it’s also now where people live and work? You know, as the world starts to reopen again post-COVID, I do think it’s going to be interesting to watch how many people really go into an office full-time again, and how many businesses really also allow for more of a hybrid structure in and out, and how much remote workforce these companies have as well.

Sarah Wheeler: Yeah, you know, when I bought my current house way before the pandemic, you know, I negotiated with my husband to get the home office. And, you know, I didn’t think that was going to be a huge perk. I was like, “Oh, how often am I going to use it?” and now, you know, of course, very happy for that. But, you know, when you think about that, you wonder how long the psychic hold of COVID will have on people when they look at housing spaces and the trend of building smaller houses or wanting smaller houses, it seems like I can see that that would probably have been reversed maybe for the whole time the people who have lived through this are looking at houses going forward because you’re looking at your house in a completely different way.

Jennifer McGuinness: Yeah, I also think that people that were really big city dwellers like real metropolitan cities, I grew up in New York as an example. And I’ve got a lot of friends that were absolutely “I’m never leaving Manhattan” kind of people. And during COVID, a lot of them have left Manhattan. Why? A lot of the [inaudible 00:27:55] was driven on space, right? Being able to actually have that space. So I think that that’s going to be interesting to look at as well. Is urbanization going to stay at the same level? Will you see shifts in that, etc. as we figure out how businesses will really function long-term?

Sarah Wheeler: Yeah, all great points. And it’ll be interesting to watch going forward as… You know, I wasn’t in the industry when we went through the financial crisis. That came in 2013 to cover it. And so, you know, I don’t have some of those… I have the scars that some consumers have, but, you know, people in the industry who went through that, it’s like, you know, they’re never the same. It has a lasting impact [inaudible 00:28:39] wonder what this lasting impact will be from COVID on homeowners. So, interesting.

Well, let’s talk a little bit about some of the products. You know, we talked about product mix and what people need now that might be different. You know, you talked about Invigorate Finances offering an innovative suite of loan products. What are some of those products? And what do you think makes them innovative?

Jennifer McGuinness: Yeah, I mean, some of the product mix that we have is absolutely innovative and some is, you know, what the market is originating. So we have the debt-service coverage ratio loan which is a 30-year loan for a business purpose investment properties. We have those in four flavor profiles for lack of a better way of saying it—30-year fixed, a 5/1, 7/1 and 10/1 ARM. One of the nuances to our business is we didn’t choose between just LIBOR or SOFR. You can actually originate our ARM products either way.

We have a first-lien home equity line of credit that quite frankly we took out of banks and created a custom servicing structure to make a secondary market tradable asset. Our first-lien non-QM will shortly launch again. We have another first-lien product that hasn’t been released yet, but maybe we’ll work with HousingWire to release that. That’s proprietary. So a little teaser there.

And then we have a first-lien jumbo. So as you could see there, we have one product that’s more core to additional lending programs that are a little bit more specialty, and then I would say that the matter in which we’ve structured are single-family, rental investor products. We have the breach products, the fix and flip, and the ground-up construction. And I think that, you know, our program gives the lenders a lot more guidance than other programs so that they can originate more loans and understand what we’re looking for more quickly.

Sarah Wheeler: Yeah. When you look forward, what’s happening in securitization right now that you’re excited about?

Jennifer McGuinness: I mean, I don’t know if there’s something happening in securitization right now that I’m excited about, but I’m excited about what we’re going to see in the next year. I think we’re going to see some new deals brought to market. I think we’re going to see some new issuers. I think we’re going to start to get a little bit more away from, you know, super, super significant agency. I’m hoping we’re going to see more in non-agency. And, you know, I think it’ll be interesting to watch what really gets done, but I would say that I think it will be interesting over the course of the next 12 to 18 months.

Sarah Wheeler: Well, I’ll have to follow that up. You know, a lot has changed since the beginning of the year, right, and new administration. What does that change mean when you think about, you know, more non-agency coming online?

Jennifer McGuinness: I think the honest answer to that right now is, who knows, right? I think whoever is going to be the new head of the CFPB, it looks like generally it’s been put out there who that might be but it’s not done yet. And then what happens with other risk regulations such as the QM patch changes and things like that, as that truly gets 100% detailed out, I think there’s a lot of work yet to be done to truly understand what the overall impact will be under the new administration. I think it’s too early to tell in certain places.

Sarah Wheeler: Jennifer, it’s been a pleasure to talk to you. Thanks for coming on and sharing your insights. Great conversation.

Jennifer McGuinness: Thanks. I appreciate you have me and I look forward to the next time we get to chat.

Sarah Wheeler: Great, thank you.